The Pound Sterling was again on the defensive on Monday, weakening significantly versus the US Dollar (GBP/USD) as the exchange rate dipped to lows below 1.5450. This triggered a number of stop-loss selling orders, which brought the market back towards 1.55 by the close of trading last night, but further downside movement is expected. The UK currency remained largely unchanged versus the Euro (GBP/EUR) around the 1.16 level, as speculation mounts that the European Central may intervene to weaken the Euro from its current level by cutting interest rates or downgrading economic growth forecasts.

A strong Euro doesn’t benefit the Euro-zone particularly when you consider the impact on export demand from places like Germany, who rely heavily on greater demand from elsewhere. The Pound also weakened versus the Australian and New Zealand Dollars, amid further speculation that the Bank of England would be happy to accept Sterling weakness and embark of a more aggressive monetary policy as a potential solution to weaker growth. The expectations were fuelling by comments from MPC member Martin Weale over the weekend. There is a fundamental lack of key economic data released in the UK this week, but Wednesday’s unemployment data will be watched closely, especially as the recent jobless figures have been better-than-expected over the past few months.

The Euro also remained largely subdued against the U.S Dollar (EUR/USD) and was confined to narrow trading ranges with activity stifled by the U.S market holiday for President’s Day. The single currency did gain some initial buying support on reports of sovereign buying, which helped push the exchange rate towards a high of 1.3370, before losing momentum later in the day.

The European Central Bank President Mario Draghi again warned investors over the downside risks for the Euro-zone economy and emphasized that there was a lot of government efforts required to improve underlying confidence. Draghi again repeated that there was no target for the exchange rate and continued to reject all suggestions surrounding a currency war. Nevertheless, he also though it necessary to reiterate that a stronger Euro did have implications for inflation and monetary policy. There are escalating concerns that a stronger Euro could push inflation too low, which would trigger a response for the Central Bank.

Data Released 19th February

GER 10:00 ZEW Economic Sentiment (February)

U.S 15:00 NAHB House Builders’ Sentiment (February)

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